SBRINT
Syllabus D. Financial Statements of Groups entities D4. Foreign Transactions And Entities

# ACCA SBR INT Syllabus D. Financial Statements of Groups entities - D4b. Foreign exchange - subsidiaries - Notes2 / 3

### Syllabus D4b)

Account for the consolidation of foreign operations and their disposal.

### Foreign Exchange - Subsidiaries

Basic Idea: We need to translate the Foreign Sub into the Group Currency

#### Exchange rates to be used:

1. Assets and Liabilities - Year End Rate

2. Income Statement - Average Rate

3. All forex differences go to the OCI and Reserves (Translation Reserve)

#### Equity Table - Working

First simply do this in the FOREIGN currency (ignore the post acquisition column) and then translate it at the following rates:

• At Year End column - Year End Rate

• At Acquisition column - Acquisition Rate

• Now do the post-acquisition column - using the translated figures

#### Foreign Exchange Translation Reserve

How to calculate the Translation differences:

This can be calculated as follows:

Translation Reserve

Opening NA (@ opening rate) (x)
Profit (@ average rate) (x)
Balancing Figure (Forex Diff) X
Closing NA (@ closing rate) x

#### Goodwill - Working

Goodwill (in foreign currency)

• Step 1: Work Goodwill in the FOREIGN currency

• Step 2: Translate the final figure at Acquisition Rate

• Step 3: Translate any impairment at the average rate for when it happened

• Step 4: Translate final goodwill figure at the Year End Rate (This is what shows on the SFP)

• Step 5: Any balancing difference goes to the OCI and Translation reserve in Equity

(nb. The NCI also get their share if using the FV method)

 Consideration 120,000 NCI 27,000 FV of Net Assets Acquired (130,000) Goodwill 17,000

Step 1:Take 17,000 and translate it at the Acquisition rate

e.g. 17,000 x 0.5 = \$8,500

Step 2:No Impairment so no translation of it needed

Step 3:Now take the 17,000 and translate it at the Year-end rate.

e.g. 17,000 x 0.6 = \$10,200

The \$10,200 is shown in the group SFP and the gain of \$1,700 is taken to OCI and the Translation Reserve

### Illustration

 P (\$) S (Pintos) Assets 9,500 40,000 Investment in S 3,818 Share Capital 5,000 10,000 Reserves 6,000 8,200 Liabilities 2,318 21,800
 P (\$) S (Pintos) Revenue 8,000 5,200 COS -2,500 -2,600 Tax -2,000 -400 PAT 3,500 2,200

P acquired 80% S @ start of year. At Acquisition S’s Land had a FV 4,000 pintos higher than book value
Proportionate NCI method

Exchange rates (Pinto:\$)

Last year end 5.5

This year end 5

Average for year 5.2

### Solution

Equity Table
 At Year End (@5) At Acquisition (@5.5) Post-Acquisition Share Capital 2,000 1,818 182 Retained Earnings 1,640 1,491 149 Land 800 727 73 Total 4,440 4,036 404
Translate S's SFP - so far
 SFP Pintos \$ Assets 40,000 8,000+800(FV) Liabilities 21,800 4,360
Translate S's Income Statement - so far
 Revenue 5,200 1,000 COS -2,600 -500 Tax -400 -77 PAT 2,200 423
Goodwill
 Consideration 21,000 3,818 x 5.5 NCI 4,440 (22,200 x 20%) FV of Net Assets Acquired (22,200) (4,036 x 5.5) Goodwill 3,240

#### Translate Goodwill

1. Step 1: At Acquisition Rate: 3,240 / 5.5 = 589

2. Step 2: At Year End Rate: 3,240 / 5 = 648

3. Forex Gain to Translation Reserve and NCI of (648-589) = 59

NCI
 NCI @ Acquisition 807 (4,440 / 5.5) NCI % of S’s post acquisition profits 81 (20% x 404) Impairment (0) NCI on the SFP 888
Retained Earnings
 P 6,000 S 323 (80% x (404) Impairment (0) Retranslation of goodwill from above 59 6,382